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Some of the Smartest Investors in the World Are Buying These 3 Stocks

It's fascinating to read through the latest
13-F
filings, which reveal the top buys and sells of many fund managers
from the prior quarter. While many investors focus on the most
high-profile money managers such as Warren Buffett or George Soros,
who often tend to find great blue-chip stocks, I'm more interested
in lesser-known stocks that the best managers are buying.

Earlier this week, we saw a fresh snapshot as more 13-F filings
rolled in, and I'm especially intrigued by three deep-value stocks
that some key money managers are loading up on in their portfolios.
I may even consider them as candidates for my
$100,000 Real Money Portfolio
(which you can sign up to receive for free for a limited time.)

Each one of these stocks trades below the shareholder equity found
on the
balance sheet
.

After the economic crisis of 2008 and 2009, this company's
portfolio of real estate loans was in deep trouble. Large office
towers were seeing rising vacancy rates, leaving iStar in a pinch
because it lacked the
cash flow
to cover upcoming
bond
payments. Fast-forward to 2012 and iStar has managed to raise cash,
extend its bond obligations and is no longer on life-support.

Still, the company's $570 million
market value
stands at just a fraction of the company's $1.56 billion in
shareholder's equity. This doesn'tmean the company is worth quite
that much. If iStar chose to unload its many loan holdings right
now, then it would have to sell them at a considerable loss. But
analysts say this stock could work its way up from a current $7
toward the $10-mark as real-estate valuations begin to firm up in a
rising
economy
.

Billionaire Investor Eddie Lampert, best known for his takeover of
Sears and K-Mart -- now known as
Sears Holdings Corp. (Nasdaq:
SHLD
)
, first started building a position in iStar last summer,
acquiring 1.9 million shares in the third quarter of 2011. He added
another 700,000 in the last quarter and now owns roughly 3% of the
company (worth about $14.2 million). That's too small a position to
think about Lampert seeking to take the company private, as he
sometimes does, but he appears to have a clear read on the value
proposition, with perhaps 40% upside ahead for this stock.

2. David Einhorn -- Xerox Corp. (NYSE:
XRX
)
David Einhorn, who runs Greenlight Capital, likes to invest on the
long and the short side. Last fall,
I noted
thebearish case he was building against
Green Mountain Coffee Roasters (Nasdaq:
GMCR
)
, and he was subsequently proven right.

Now Einhorn is making a play on the long side, building a new $17
million position in document-management company Xerox. Though the
company has only modest growth prospects, he clearly sees the value
angle in this investment: Xerox has racked up a cumulative $5
billion in
free cash flow
in the past three years, and its $11.2 billion market value is at
discount to the firm's $12 billion in shareholder's equity.

My colleague Adam Fischbaum
laid out a solid case
for the stock last fall, and I wholeheartedly agree with his take.

Yet Xerox's shares have yet to gain steam, in part because
fourth-quarter results were just "so-so." But analysts at Brean
Murray say "results should strengthen throughout the year," adding
that "the stock feels fundamentally oversold to us." They've got a
point. The stock trades for just seven times projected 2012
profits. To support its stock, Xerox plans to buy back roughly $1
billion worth of shares this year. That could shrink the share
count by more than 10%.

3. Whitney Tillson -- Citigroup (NYSE:
C
)
I've been writing about this financial giant a fair bit in recent
weeks, because I have a high level of conviction that a multi-year
upward move is setting up for Citigroup as it rises from the ashes
of the Great
Recession
. That's why it's a member of my
$100,000 Real-Money Portfolio
.

So I'm heartened when a banking industry expert like Whitney
Tillson agrees with my
bullish
view. His
hedge fund
, T2 Partners saw the financial crisis coming and positioned its
clients for strong gains on the short side. He subsequently stayed
largely on the sidelines, but has become quite active again, and
now has an increasingly bullish view. As of June 2011, he owned
just 80,000 shares of Citigroup, but he bought 194,000 shares in
the third quarter and another 190,000 in the fourth quarter.

Tillson's current $12.2 million stake in the Citigroup is a pretty
big bet. Only his $19 million investment in
Berkshire Hathaway (NYSE:
BRK-A
)
is significantly larger. He's likely enamored with the fact that
Citigroup's $95 billion market value stands at a steep discount to
its $163 billion in shareholder's equity and $130 billion in
tangible
book value
.

Risks to Consider:
These stocks trade below shareholder's equity for a good reason
-- each has only partially emerged from a tough stretch and each
could take a fresh hit if the U.S. economy slumps anew.

Action to Take -->
It often pays to follow in the footsteps of successful fund
managers. Eddie Lampert, David Einhorn and Whitney Tillson have all
established solid track records, and investors can mimic their
performance by loading up on their key holdings. The three stocks I
mention here might be a good place to start.

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